Decision will be entered for respondent with respect to the deficiency and for petitioner with respect to the accuracy-related penalty under section 6662(a).
CARLUZZO,
In a notice of deficiency dated December 10, 2013 (notice), respondent determined a $6,513 deficiency in petitioner's 2010 Federal income tax and imposed a $1,302.60 section 6662(a) accuracy-related penalty.
The issues for decision are whether petitioner is: (1) entitled to a dependency exemption deduction for any of his four minor children; (2) entitled to a child tax credit; and (3) liable for a section 6662(a) accuracy-related penalty.
Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioner resided in Florida.
Petitioner married Shannon D.2016 Tax Ct. Summary LEXIS 61">*62 Vinson in 2000. They have four children, all minors as of the close of the year in issue. Petitioner and Ms. Vinson separated in August 2006; they were divorced by a judgment of final divorce filed November 19, 2008 (divorce decree).
While petitioner's divorce action was pending, his support obligations with respect to his children were established in a judgment dated December 14, 2007 (support decree). In addition to establishing the amount of child support he was to pay, the support decree provides that petitioner is entitled to claim Federal and State dependency exemption deductions with respect to his children "as long as * * * [he remains] current in child support." Ms. Vinson did not sign the support decree. Petitioner satisfied his child support obligations during the year in issue; however, as of the close of that year there were arrearages in his child support payments carried over from prior years.
Neither the divorce decree nor the support decree provides for custody of petitioner's children. Petitioner, who lived in Florida during the year in issue, agrees that Ms. Vinson, who lived in Louisiana during that year, was the custodial parent of their children. As best we can2016 Tax Ct. Summary LEXIS 61">*63 determine from petitioner's presentation at trial, as of the date of trial, and although he had requested her to do so, Ms. Vinson had not signed a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, for any year since their divorce had become final. Petitioner claimed a dependency exemption deduction for each of his four children on his 2007, 2008, and 2009 Federal income tax returns. None of those returns were examined by respondent. Before filing his 2010 Federal income tax return, and in response to his inquiry, petitioner received an email from an employee of the Support Enforcement, Louisiana Department of Children and Family Services, advising that, "if a state court judgment is not conditional (i.e., there is no stipulation or clause regarding the arrearage), then the IRS can use that state court judgment to determine whether a filer is entitled to claim his or her children. If a state court judgment is conditional, the IRS will NOT use it to determine eligibility."
According to petitioner, his electronically submitted 2010 Federal income tax return, on which he claimed a dependency exemption deduction for each of his four children,2016 Tax Ct. Summary LEXIS 61">*64 was rejected because Ms. Vinson had already claimed dependency exemption deductions for the children on her 2010 Federal income tax return. Ultimately, petitioner consulted with a paid income tax return preparer, described his situation to that return preparer, and had his 2010 Federal income tax return prepared by that return preparer. As relevant here, on that return petitioner claimed a dependency exemption deduction for each of his children, along with a child tax credit computed as though he had three or more qualifying children. Needless to say, because Ms. Vinson refused to sign a Form 8332 for any year, petitioner did not, and could not, attach one to his 2010 return; he did, however, attach a copy of the support decree.
Respondent disallowed the dependency exemption deduction claimed for each of petitioner's children because, according to the notice: (1) the support decree "had a stipulation of child support being current"; (2) petitioner "failed to provide a Form 8332 from the custodial parent with * * * [his] original filings"; and (3) "the children are being claimed by another taxpayer for the exemptions". Respondent also disallowed the child tax credit claimed on petitioner's2016 Tax Ct. Summary LEXIS 61">*65 return because, according to the notice, "one or more qualifying children [claimed on petitioner's return] has been disallowed". A section 6662(a) accuracy-related penalty is imposed in the notice on several grounds, including "negligence or disregard of rules or regulations" and a "substantial understatement of income tax."
The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving that the determinations are in error.
Section 151(c) allows a taxpayer to deduct an "exemption amount for each individual who is a dependent (as defined in section 152) of the taxpayer for the taxable year." Section 152(a) defines a "dependent" as a "qualifying child" or a "qualifying relative". Under the circumstances, we need not get into the definitions of those terms.
In the case of divorced or separated parents, section 152(e) provides a special rule to determine which parent is entitled to a dependency exemption deduction for a child. In general, a child who is in the custody of one or both of the child's parents for more than one-half of the calendar year and who2016 Tax Ct. Summary LEXIS 61">*66 receives more than one-half of his/her support from parents who are divorced or separated or who live apart at all times during the last six months of the calendar year will be considered the qualifying child of the custodial parent. Sec. 152(e)(1);
Pursuant to section 152(e), a child will be treated as a qualifying child of the noncustodial parent only if, among other requirements, "the custodial parent signs a written declaration (in such manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year". Sec. 152(e)(2)(A). If the custodial parent signs such a written declaration, then the noncustodial parent must attach it to the noncustodial parent's return for the taxable year2016 Tax Ct. Summary LEXIS 61">*67 beginning during such calendar year. Sec. 152(e)(2)(B).
Petitioner attached the support decree to his 2010 return. But as noted, that document2016 Tax Ct. Summary LEXIS 61">*68 makes clear that petitioner's right to claim dependency exemption deductions for the children was not unconditional; rather, petitioner was entitled to the dependency exemption deductions provided he remained current in paying child support. Consequently, the support decree, even if otherwise sufficient, would not satisfy the unconditional declaration requirement of section 152(e)(2)(A). Accordingly, petitioner is not entitled to the dependency exemption deductions here in dispute, and respondent's disallowances of those deductions are sustained.
A taxpayer is entitled to a child tax credit for "each qualifying child", as defined in section 152, who has not reached the age of 17 and for whom the taxpayer is allowed a deduction under section 151. Sec 24(a), (c)(1). Because petitioner is not entitled to a dependency exemption deduction for any of his children, he is not entitled to a child tax credit. Respondent's disallowance of that credit is sustained.
Lastly, we consider whether petitioner is liable for a section 6662(a) accuracy-related penalty. Relying upon various grounds, including a substantial understatement of2016 Tax Ct. Summary LEXIS 61">*69 income tax, respondent argues that he is.
Section 6662(a) imposes a penalty of 20% of the portion of an underpayment of tax attributable to a substantial understatement of income tax. Sec. 6662(b)(2). An understatement of income tax is substantial within the meaning of section 6662 if, as relevant here, the understatement exceeds $5,000.
Respondent bears the burden of production with respect to the imposition of the penalty imposed in the notice and here in dispute,
Nevertheless, if petitioner shows that he acted in good faith and had reasonable cause for any portion of the underpayment of tax, then the section 6662(a) accuracy-related penalty is not applicable with respect to that portion.
Under certain circumstances, a taxpayer's reliance upon professional advice may establish the taxpayer's "reasonable cause" and "good faith" with respect to an underpayment2016 Tax Ct. Summary LEXIS 61">*70 of tax if the taxpayer establishes that: (1) the professional was provided with complete and accurate information; (2) an incorrect return was a result of the preparer's mistakes; and (3) the taxpayer demonstrates good faith reliance on a competent professional.
It is clear from the record that petitioner is not experienced in tax matters. We are satisfied that petitioner met with his return preparer and fully disclosed the facts surrounding the situation with his children. Moreover, we disagree with respondent's suggestion that petitioner should have relied upon the advice of the Louisiana official rather than the advice of his return preparer. After considering the totality of the facts and circumstances, we conclude that there was reasonable cause for, and petitioner acted in good faith with respect to, the underpayment of tax required to be shown on his 2010 return.
To reflect the foregoing,
1. Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended, in effect for the year in issue. Rule references are to the Tax Court Rules of Practice and Procedure.↩
